Cenvat credit reversal satisfies exemption condition when treated as non-availment under Rule 6(3D), defeating demand and penalty.

Rule 6(3D) of the Cenvat Credit Rules, 2004 creates a deeming fiction under which credit reversed by payment in the prescribed manner is treated as credit not taken for the purpose of an exemption notification. On that basis, where an assessee had initially availed credit on inputs used for exempted goods but later reversed it under Rule 6(3), the condition in Notification No. 30/2004-CE requiring that no Cenvat credit be taken was treated as satisfied. The Tribunal therefore held that the demand could not survive, and the penalty founded on the same demand was also unsustainable.

---

---

Issues: Whether reversal of Cenvat credit by payment of an amount under Rule 6(3)(i) of the Cenvat Credit Rules, 2004, read with Rule 6(3D), satisfies the condition in Notification No. 30/2004-CE that no Cenvat credit should be taken on inputs used for exempted goods.

Analysis: Rule 6(3D) creates a deeming fiction that payment made under Rule 6(3) is to be treated as credit not taken for the purpose of an exemption notification. On that reading, where credit initially taken is reversed in the prescribed manner, the assessee is treated as having complied with the condition of the exemption that no credit should have been availed. The Tribunal applied this statutory effect to hold that the demand could not survive, and the penalty based on the same demand also could not be sustained. The view was consistent with the cited Tribunal decisions recognising reversal of credit as equivalent to non-availment for exemption purposes.

Conclusion: The issue was decided in favour of the assessee, and the demand and penalty were set aside.

Ratio Decidendi: Where Rule 6(3D) applies, reversal of credit under Rule 6(3) is treated as credit not taken for the purpose of the exemption notification, so the exemption condition of non-availment of credit stands satisfied.

---